Lithuanians ditch government in verdict on austerity

October 14, 2012|By Andrius Sytas and Christian Lowe | Reuters

(Ints Kalnins, Reuters)

VILNIUS (Reuters) - Lithuania's opposition prepared to take power on Monday after voters rejected the austerity-minded government, a foretaste of what may await other European leaders forced to make unpopular cuts by the financial crisis.

An ex-Soviet state of about three million people, Lithuania crashed hard when the crisis hit four years ago. It slashed spending in response and is now returning to economic health - but too late for voters fed up with belt-tightening.

An exit poll after a parliamentary election on Sunday showed Lithuanians had thrown out centre-right Prime Minister Andrius Kubilius in favor of a coalition of left-leaning opposition parties who promise to soften the austerity.

The government of the Baltic nation lost out despite winning praise from big European powers and the International Monetary Fund (IMF) for its thrift and discipline.

"If the IMF was voting then he (the prime minister) would be re-elected," said Kestutis Girnius, who teaches at the Institute for International Relations and Political Science in Vilnius.

"But the IMF does not live in Lithuania, and they could not live on a Lithuanian salary."

As one of the European Union states most severely hit by the crisis, and one of the fastest to implement austerity, Lithuania is a bellwether for governments in Greece, Spain, Ireland and elsewhere, who are being forced to make similar swinging cuts.

The RAIT/BNS exit poll gave the biggest share of the vote, 19.8 percent, to the Labor Party. The centre-left Social Democrats, likely coalition partner for Labor, were second with 17.8 percent and the prime minister's Homeland Union was in third place on 16.7 percent.

Partial official results, based on the votes that have been counted so far, ranked the parties in the same order.

The final shape of the next government will not be clear until talks take place on forming a coalition. It may come down to a second round, to take place in two weeks, which will settle races in local districts where no candidate had a clear lead.

BOOM AND BUST

The prime minister said he would fight on into the run-off round, but it appeared unlikely he would be able to stay in power, after voters held him accountable for the tough decisions he took to drag Lithuania out of crisis.

"What kind of crisis management are we talking about?" asked Alfonsus Spudys, 78, on his way out of a polling station on Sunday in the capital, Vilnius. "They scythed people down ... and now they are saying they handled the crisis really well."

Before the financial crash in 2008, Lithuania was booming. Scandinavian banks provided cheap credit which let the country buy more than it sold and over-heated the real estate market.

When the crisis struck, the banks stopped lending. Economic output dropped by 15 percent in 2009. Unemployment shot up. Thousands of young Lithuanians went abroad to seek work.

Kubilius, elected after the crisis began, cut pensions and public sector wages. To save money, only every third street lamp in Vilnius was lit, and fuel for police cars was rationed.

This discipline helped the economy rebound. Gross domestic product grew 5.8 percent last year, one of the fastest rates of any EU economy. The budget deficit has been tamed. Yet most Lithuanians feel worse off than they did four years ago.

The opposition parties expected to form the governing coalition have said they will ease the pain of austerity by increasing the minimum wage, making the rich pay higher income tax than the poor and launching job creation schemes.

Economists say the country's still-delicate finances dictate that whoever is in government will have to stick, for the most part, to the existing austerity program.

Labor Party leader Viktor Uspaskich said the budget deficit might under certain circumstances be allowed to rise above 3 percent of gross domestic product - a threshold which the EU uses to gauge countries' fiscal discipline.

"How otherwise can you generate (growth in) the economy if you only borrow to cover regular expenditure? You need to borrow for generating (growth)," Uspaskich, a Russian-born businessman, told Reuters in an interview late on Sunday.